Md. senators question Blues' pending creation of a for-profit business Plans may now face an uncertain future in the legislature

Who stands to benefit?

Stock sales, earnings would generate hundreds of millions

October 04, 1995|By John Fairhall | John Fairhall,SUN STAFF

Blue Cross' plans to create a for-profit business -- which the company had once hoped would be approved by now -- appear headed for a lengthy debate and an uncertain future in the 1996 General Assembly.

Company executives and Maryland Insurance Commissioner Dwight K. Bartlett III got a taste of the future when they testified yesterday in Annapolis for the first time about the plans.

Nonprofit Blue Cross and Blue Shield of Maryland would split into nonprofit and for-profit businesses, and sell part ownership to investors.

Members of the Senate Finance Committee fired a barrage of tough questions at the company, and Mr. Bartlett, focusing heavily on one of the key issues: Who will benefit from the hundreds of millions of dollars that could be generated from stock sales and earnings?

Mr. Bartlett stuck to his position that the general public is not entitled, under Maryland law, to receive the money. Only subscribers may benefit, he said, though it is unclear from the company's plans how that would occur.

The state's top insurance regulator invited the legislature to change the law if it wishes -- something the legislature will at least consider doing.

Committee Chairman Thomas L. Bromwell reiterated that the legislature would make the final decision on that and other issues raised by the company's plans -- a view shared by Gov. Parris N. Glendening, Senate President Thomas V. Mike Miller Jr. and House Speaker Casper R. Taylor Jr.

"This is a fundamental policy issue that will affect the economic ,, well-being of the state as well as policyholders," Mr. Glendening said in an interview yesterday.

"In that sense, any decision that is reached must be done through the normal legislative process. Obviously that means committee hearings, the public hearings, and the governor and the legislature working together as well."

At the committee meeting, Mr. Miller also cautioned Blue Cross and Mr. Bartlett that it is "important that we not move too hastily" on the company's plans. He said Maryland should take a look at how other states are handling similar Blue Cross restructuring plans.

Mr. Taylor said the legislature will begin hearings after it has received a formal plan from Blue Cross.

But the company, which had hoped to present Mr. Bartlett a plan this summer and win his approval, now says it may be late December before a plan is unveiled.

Company officials said they will wait for state-hired experts to analyze aspects of the preliminary plans they have been discussing with Mr. Bartlett since he rejected a similar Blue Cross restructuring proposal in January.

Mr. Bartlett disclosed to the committee that on Friday he took the first step toward hiring outside experts by requesting consulting proposals from the "Big Six" national accounting firms.

The consultant will determine the value of assets that Blue Cross wants to shift from its present nonprofit company to a new for-profit firm that would sell stock. This will help determine how much the for-profit company must pay the general public or subscribers or whoever the legislature decides is entitled to benefit.

Sen. George W. Della Jr. strongly suggested that Mr. Bartlett needs lots of advice and observed that Blue Cross has an "army of lawyers." Mr. Della sharply questioned Blue Cross' motives, asserting, "Somebody is going to benefit out of this, and it's not going to be the public."

"I beg to differ emphatically," retorted William L. Jews, Blue Cross president and chief executive. Mr. Jews, who has tried to keep secret details of his company's plans, said "there ought to be full public disclosure" and "full debate" on who should benefit from the for-profit, stock-selling business.

Despite many private discussions among company officials, consultants and Mr. Bartlett's office, Mr. Jews insisted that "no proposals have been finalized" and that "there are no preconceived notions."

Mr. Jews rejected comparisons with California, where a Blue Cross company converted entirely to a for-profit business and was required to contribute $3.2 billion to charitable foundations.

Blue Cross of Maryland should not convert entirely to a for-profit company, because it would no longer be a locally controlled business committed to insuring all people, regardless of health, he said.

But company officials said they don't object to creation of a foundation.

Who should control the foundation -- Blue Cross or others -- is another issue for the legislature to discuss, they said.

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